Columbia brings in Hilcorp to handle drilling

September 17, 2012

COLUMBIANA Two days this past week those who own land in the Brinker Storage Field were invited to meet with Columbia Gas Transmission and Hilcorp Energy officials to discuss what will become of the already existing mineral gas leases there, among other things.

The meetings are only two of other meetings held in private between the landowners and Columbia Gas, but officials had declined to make any information public in the past.

Although the meetings remained closed to non-landowners, spokesmen for the companies offered a brief insight into what was taking place.

Justin Furnace, corporate manager of external affairs for Hilcorp Energy, verified the bulk of the meetings have focused on the landowners' concerns regarding already existing land leases owned by Columbia. Hilcorp will be doing the actual drilling for Columbia.

The mineral rights leases on the 35,000-acre storage field date back to the 1940s, and due to the terms are keeping interested landowners from signing new, more lucrative leases with other oil and gas exploration companies like Chesapeake Energy.

Earlier this year the Cleveland Plain Dealer reported many of the landowners, and even Chesapeake, were unaware of the existing leases until they were in the negotiating stages of a new land lease. Some of the leases paid as low as $4 per acre and offered no royalty percentages, or a lump sum royalty of $200-a stark contrast to the sometimes more than $5,000 an acre and as high as 17 percent royalty offered by Chesapeake. According to a standard Chesapeake lease, royalties are paid continually as long as oil or gas is recovered from the leased property.

The Cleveland newspaper also reported that once Chesapeake learned of the long-standing leases any deals with landowners were off, since the company wanted clear title to the mineral rights.

As a result many of the landowners filed a lawsuit against Columbia, arguing the old leases have expired due to lack of activity on the properties and lack of payment of lease fees.

Under the existing leases, Columbia is permitted to store natural gas under the Brinker property in the Berea Sandstone formation.

Furnace did not offer any information on the status of the leases, but said the company intends to work with the landowners until they are "satisfied."

He said the most recent meetings had been in the planning stages for months and that landowners stayed long after the hour-and-a-half meeting was over the first night gathering feedback.

Landowners were encouraged to ask company officials questions and air their concerns.

One landowner pointed out prior to the meetings that the state needs to work toward implementing a minimum royalty law like Texas, West Virginia, Pennsylvania, and New York, to name a few. Minimum royalty in those states is at 12.5 percent.

He said that without the law, he and other landowners are "nearing unconscionable exploitation of their royalty ownership" through the outdated leases. Unlike others affected by the leases, he has not filed a lawsuit against Columbia.

He has, however, sought out help from government officials regarding a minimum royalty law, including state Rep. Mark D. Okey, D-Carrollton, who in July introduced a bill that would require a minimum royalty payment of 15 percent of gross revenue on active wells.

The bill was assigned to the House Committee on Agriculture and Natural Resources and a hearing date has not been set. However, there is a possibility the law may not affect those in the Brinker Field unless they are grandfathered in if and when a bill is passed.

Jerry James, Ohio Oil and Gas Association president, told the Youngstown Vindicator this summer that the association would not support any law that would create a minimum royalty and that the situation with Columbia and Brinker Storage Field landowners is something that should be worked out among themselves.

Working it out appears to be something Hilcorp is pursuing, as the landowner said the company is proposing an amendment to the existing leases that would include a 12.5 percent royalty. Whether the royalty is on the gross amount was not clear.

The proposal was verified by another landowner affected by the leases, which are on record at the county courthouse in Lisbon.

The properties involved were originally leased by the Manufacturers Light and Heat Co., which eventually transferred the leases to Columbia. On May 18 of this year, Columbia transferred the leases to Texas-based NiSource, its parent company.

NiSource announced in July that it would work with Hilcorp Energy to pool acreage in the Utica Shale for drilling. The shale is largely found about 8,000 feet below the surface of the ground in Ohio, Pennsylvania, West Virginia and New York.

Hilcorp, based in Houston, bills itself as the third-largest, privately-held exploration and production company in the country with more than 1,000 employees.